Thursday, April 21, 2016

Mega-Inequity of Life: Nano-Equity as an Option

Inequity has been an intrinsic part of life, ever since its origins. Over the centuries, there have been royalties and kingdoms that created or shared wealth with the poor. There have also been many instances where poor were exploited and made poorer, within nations and across nations. With progress of modern thought, and the strong conceptual reverberations of socialism, one would have thought that inequity should have been a less painful aspect of human life. However, social systems and human behaviour have not been kind to initiatives to alleviate inequity through uplifting of the poor or redistribution of wealth. There is still a facile belief that expansion of economic activity and creation of national wealth on a gross basis are more important so that there can be a pull effect on the sections affected by inequity. Thinkers like C K Prahalad did propose an alternative paradigm of building wealth at the bottom of the pyramid but that has been from an angle of development and supply of products relevant for people at the bottom of the pyramid.

Successive governments in India have been trying various routes to reduce inequity including, and majorly, through direct subsidies. Seepage of subsidies and misdirection have sharply limited their utility even as the debate on opportunistic cash doles versus sustainable economic activity logically favours the latter. With India being dependent not only on timely and copious monsoons as well as imported oil, technology and materials on one hand and export markets as well as foreign capital on the other hand, the degrees of freedom to reach the full potential in economic resurgence and social equity have been lower. Yet, the current Union Government has been making new and creative efforts for inclusive growth through universal bank accounts (Pradhan Mantri’s Jan Dhan Yojana), financing of small enterprises (MUDRA Bank to refinance micro units), ‘start-up’ and ‘stand-up’ India movements etc. Hopefully, all of these would have a positive impact sooner than later. However, more is required for some instantaneous redressal of inequity.  

Water inequity

Human life is critically dependent on water. Faced with below normal or erratic monsoons for two to three years in succession, almost the entire Indian nation is facing widespread drought conditions. The blistering heat wave of this summer has only accentuated the water woes, with towns like Latur requiring water trains from other locations to survive. This contrasts with the chill-out the wealthy rural and urban families have with deep bore wells and high performance air conditioners. This, however, is only one aspect of inequity. The other more distressing inequity is profiting at these travails. Over the last few days, the stock markets have witnessed a mini-bull run; the reasonhas been the prediction by the Indian meteorological Department (IMD) that India would have a normal monsoon this year. Stock markets have immediately made calculations of an increase in rural consumption, and the impact it would have on the financials of firms catering to rural demand, which served to hike up stock prices!

As a result of the above, market capitalization got spiked by a few thousands of crores of rupees, and savvy stock market operators became richer by millions of rupees. Unfortunately, on ground, the drought and heat conditions are set to worsen causing more hardships to the underprivileged.  This is a sad case of how certain sections of the society prosper on the news pertaining to other sections in deep distress. This, to the author’s mind, is inequity multiplied manifold. It is somewhat tragic that certain joy of a few sections of the society is predicated on the travails of other, less privileged, sections. In one of the business TV channels, there was an interview with the managing director of a leading ice cream manufacturer of India. While talking about the company’s exciting prospects in this summer, he said “fortunately there have been no rains thus increasing the demand for his company’s ice cream products”! Nothing could be more callous!! Hospitals benefitting from disease proliferations, indiscriminate use of antibiotics and irrational combinations, power plants belching out coal ash and other pollutants, and so on…the list of man-made incremental inequity is indeed lengthy.

Instant or distant

Most inequity imposed by human behaviour needs ‘instant redressal’ which provides immediate succour; some, however, requires ‘sustainable redressal’ which provides long term sustainability. In the above mentioned stock market profiteering based on IMD forecast, a portion of such speculative profits must be channelled to address water concerns and heat stroke risks of the indigent population. The bourses must have the leeway to impose and collect additional turnover tax on such spikes and direct the collections to a special emergency fund. In addition, a small surcharge or a special cess on day or margin trading, which is essentially speculative, would be in order. Ice cream makers,  air conditioner manufacturers, air conditioned rail facilities and companies dealing in similar seasonally exploitative products and services must be willing to pay some comfort tax out of their incremental seasonal revenues as long as such products and services are not available or affordable to all sections of the population. Needless to say, health tax on sugary beverages, sweets, salted products and other hyper processed foods would also be in order.

Land acquisition from the indigent for industrial and infrastructural development, qualifies for sustainable redressal. It may seem nice to pay certain multiple of market value immediately upon acquisition of a land parcel. Long term justice would, however, happen only when a perpetual share in development is provided to those who part with land. Public acquisition of land for private business purposes should not lead to usurious benefits to the private parties. A case in point is a large infrastructure developer firm which is thinking of monetizing its land back acquired, through public policy, as part of the international airport project. There must be avenues for part benefits of such monetization to accrue to the original owners; otherwise, it would smack of a runaway steal of public wealth by private parties ( Such undue monetization comes on the top of huge debts piled up by such infrastructure developers from public sector banks, even as the governments struggle to help micro enterprises through existing institutions or specially established banks within the limited fiscal resources of the governments.

Micro/nano finance

Setting up of microfinance institutions that finance indigent individuals directly or through self-help groups and NGOs has been a major development in the Indian financial sector. The microfinance initiatives started in the 1970s but gathered momentum in the 1990s with support from public financial institutions such as NABARD and SIDBI. There was a backlash against microfinance about five years ago in the wake of unsavoury experiences in Andhra Pradesh. The sector has now received a major boost and has seen a strong revival of interest, with a few microfinance institutions securing banking licenses. While microfinance companies have provided significant support to the rural population and people below the poverty line, the regulations pertaining to establishment of microfinance corporations which require a minimum capital of Rs 5 crore, in terms of net owned funds, inhibit more entrepreneurs from entering the microfinance sector. In the interests of financial inclusion, it is appropriate to relax the capital requirement to Rs 2 crores (as is the case with NBFs) so that more entrepreneurs could enter this sector.

Simultaneously, a new class of nanofinance corporations should be allowed, with a capital base of Rs 50 lakhs, and priority sector debt eligibility of Rs 50 lakhs from banks. Considering that a nominal loan under nanofinance could at most be Rs 10000 per individual, such nano capital of Rs 100 lakhs would enable each nano corporation touch the lives of 1000 people at least. Relaxation of the limits could enable even high networth individuals establish nanofinance corporations as their contribution to both the startup culture and social responsibility. Such nano finance corporations could also serve as satellites to the larger microfinance corporations. Currently, over 225 microfinance corporations seem to be active; opening up of a nanofinance sector could add at least 20000 additional financing entities for greater financial inclusion.

Long haul

Dr Raghuram Rajan, the erudite outspoken Governor of the Reserve Bank of India has stated that India needs to perform consistently at the current rates of growth of 7.5 percent (and above) for at least 20 years if everyone in India has to have a decent living. If one sees the visuals in recent media of parched lands and heartbroken farmers, children who are barefooted and bare-chested travelling kilometres with large empty pots to collect drinking water, the gruelling heat conditions, one would agree that there is more to social equity than economic growth rates.  India’s ability to precipitate and conserve as well as harvest and recycle every drop of water would be an essential component of reducing inequity. Farms that are green all through the year, agricultural lands that are put only to agricultural use, tanks, lakes and rivers that are protected to retain their water bodies, interconnection of rivers, preservation of groundwater tables would be the principal enablers to breathe a base level life in indigent lives.

Governments, financial institutions and companies and individuals are part of an elaborate tax structure to generate resources needed for growth. Even as the nation suffers from nature’s setbacks time to time, there must be methodologies to capture incremental contributions from speculative surge wealth to finance the nature reinforcement measures. Any purchase of stock with a daytime spike in price beyond 5 percent, for example, could attract an additional transaction tax for such financing. Income tax may be supplemented with consumption tax in respect of luxury products.  Many individuals help their indigent domestic and office workers all the time. There should be a framework to direct such diffused financing through nanofinancing institutions. Though such institutions are not allowed to collect deposits from public, institutionalization of individual financial helps would go a long way in motivating and assuring both both the benefactors and beneficiaries. Even nano-equity, crowd-sourced, could help alleviate the mega-inequity that abounds in India.

Posted by Dr CB Rao on April 21, 2016 

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